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  • With banks set to report Q3 earnings, regulators will have an eye on how much of a boost profits get by slashing reserves for bad loans. Perfectly legal, the action nevertheless gives an unsustainable boost to profit - it's accounted for 23% of the bottom line for TBTFs over the last year - making banks look healthier just at the time they've thinned cushions against the next downturn. [View news story]
    The true measure of both earnings and the cushion banks have to absorb risks has been and always will be pretax, pre-provision earnings. LLR and equity capital are both available to absorb losses. While once could perceive earnings to be under-reported in times of reserve building and over-reported when they are reduced (or "released") this is driven by SEC scrutiny to avoid window dressing. It is embarrassing to hear regulators highlight reserve releases as "troublesome". Andrew M. Aran, CFA
    Oct 11, 2012. 04:38 PM | 1 Like Like |Link to Comment
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